Connecticut-led probe of generic 'cartel' grows to 300 drugs

Mylan is among the producers of generic drugs under investigation in a widening probe of alleged price-fixing led by the Connecticut attorney general's office.

An antitrust lawsuit brought by states over just two drugs in 2016 has now exploded into an investigation of alleged price-fixing involving at least 16 companies and 300 drugs, according to the office of Attorney General George Jepsen, whose office has been leading the probe.

"This is most likely the largest cartel in the history of the United States," said Joseph Nielsen, an assistant attorney general and antitrust investigator. He cited the volume of drugs in the schemes, that they took place on American soil and the "total number of companies involved, and individuals."

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The lawsuit and related cases picked up steam last month when a federal judge ruled that more than 1 million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.

The unfolding case is rattling an industry that is portrayed in Washington as the white knight of American health care.

"As Attorney General Jepsen has stated in the past, the current litigation is just the tip of the iceberg in terms of the scope of this industry-wide investigation,’’ said Jaclyn M. Severance, a spokesperson for Jepsen. “While we anticipate further action in the future, we are focused on our investigation and the pending litigation at this time, and are unable to comment further."

The victims were American health-care consumers and taxpayers, who foot the bills for overcharges on common antibiotics, blood-pressure medications, arthritis treatments, anxiety pills and more, authorities say. The costs flowed throughout the system, hitting hospitals, pharmacists and health insurance companies. They hit consumers who lack prescription drug coverage and even those with insurance, because many plans have high deductibles and gaps on prescription drug benefits.

In just one instance of extraordinary cost spikes, the price of a decades-old drug to ease asthma symptoms, albuterol, sold by generic manufacturers Mylan and Sun, jumped more than 3,400 percent, from 13 cents a tablet to more than $4.70. The example is documented in a lawsuit brought against the generic industry by grocery chains including Kroger.

"Everyone is paying the price," Nielsen said. He offered a single word to explain the behavior: "Greed."

While precise estimates of alleged overcharges have not been released, generic-industry sales were about $104 billion in 2017. Excessive billings of even a small fraction of annual sales over several years would equal billions of dollars in added costs to consumers, according to investigators.

Generic manufacturers reject the accusations. They contend officials lack evidence of a conspiracy and have failed to prove anti-competitive behavior.

Among the 16 companies accused are some of the biggest names in generic manufacturing: Mylan, Teva and Dr. Reddy's. Mylan denied wrongdoing in an emailed statement. Sun, Teva and Dr. Reddy's did not respond to requests for comment. In a court filing, Teva said allegations of a price-fixing conspiracy "are entirely conclusory and devoid of any facts."

But investigators say voluminous documentation they have collected, much of it under seal and not available to the public, shows the industry to be riddled with price-fixing schemes. The plaintiffs now include 47 states. The investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.

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Two former executives of one company, Heritage Pharmaceuticals, have pleaded guilty to federal criminal charges and are cooperating with the Justice Department in a parallel criminal case. A Justice Department spokesman declined to comment.

The alleged collusion transformed a cutthroat, highly competitive business into one where sudden, coordinated price spikes on identical generic drugs became almost routine. Competing executives were so chummy they had an alphabetical rotation for who picked up the tab at their regular dinners, according to a person familiar with the investigation who spoke on the condition of anonymity because the case remains under investigation.

Generics account for 90 percent of the prescriptions written in the United States but just 23 percent of costs, according to the industry trade group, the Association for Accessible Medicines.

And generic drugs do act as a check on soaring drug bills fueled by brand-name manufacturers. In the Medicare prescription-drug program, according to a government study, prices on a benchmark set of older generic drugs dropped 14 percent between 2010 to 2015.

But for some generic manufacturers, the anti-competitive agreements drove up prices on most, if not all, of the products they sold, according to the states.

Officials say they have documented price increases of up to 2,000 percent. Throughout 2013 and 2014, soaring generic prices sparked consternation at drugstores and among state and federal lawmakers. Independent pharmacists said they were dismayed to learn of the price-fixing allegations.

"There's old, old drugs that have been around a long time, and all of a sudden their price has increased by hundreds of percent and we don't know why," said J.D. Fain, owner of Pieratt's Pharmacy in Giddings, Texas, a small town an hour drive east of Austin.

Unlike the brand-name drug industry, which gets years of patent exclusivity for novel drugs, generic companies operate in a market that was designed to save consumers and taxpayers large sums through aggressive competition. When the FDA grants approval for a generic product, the first company in the door gets six months of exclusive rights to market the drug. The price discount from the brand-name product is relatively small, say 10 percent.

Prices plunge as much as 50 percent once a second generic enters the market, the FDA has estimated. And by the time six or seven generic companies are competing on a particular drug, the price has declined 75 percent.

Rigging the market has turned that model upside down for some drugs, state officials say.